The Chancellor, Phillip Hammond, has made a number of employment related announcements which employers will need to be aware of and plan for. Below is a brief overview of the highlights from an employment perspective.
Restriction of Salary Sacrifice Benefits
From April 2017, the tax and NIC advantages derived from salary sacrifice arrangements such as medical benefits and technology will be removed, except for the schemes relating to pension, childcare, cycle to work, ultra-low emission company cars and the purchase of annual leave.
Transitional measures will apply until April 2018 in respect of arrangements entered into before the new provisions come into force. Arrangements relating to cars, accommodation and school fees will be protected until 2021.
This may result in employers needing to rethink the pay packages offered to attract the best people possible and offer flexibility to reflect employees’ differing circumstances.
Reform of the IR35 Rules
These rules apply to public sector workers. From April 2017, where an individual is engaged through an intermediary, such as their own limited company, public sector employers will be responsible for deciding whether the intermediaries legislation applies and then paying the relevant tax and NICs directly before transferring the net funds to the company. The Government is abolishing the current 5% tax free allowance. They are predicting that tax revenues will, consequently, increase by around £20 million each year.
PAYE Settlement Agreements
The Chancellor announced that the Finance Bill 2017 will simplify the administration of PAYE settlement agreements from April 2018.
Changes to the Taxation of Termination Payments
Following the Government’s recent consultation, it was confirmed that from April 2018, it will still be possible to make a tax free termination payment of up to £30,000 but that termination payments which exceed the £30,000 income tax free amount will become subject to employer Class 1 NICs.
From April 2018 all non-contractual payments made in lieu of notice will become taxable. Clarification was given that only basic pay will be taxable.
Tax and Employment Status
The Chancellor recognised the issues with the tax treatment of different forms of employment such as single person incorporations. The Government wants to ensure that the taxation is fair, sustainable and efficient. A report on Employment Status is due in early 2017.
The National Living Wage and National Minimum Wage
The national living wage is to increase from £7.20 to £7.50 from April 2017. The Government plans to invest £4.3 million into the national minimum wage and national living wage enforcement teams.
Employee Shareholder Status
The tax advantages associated with holding an employee shareholder status will be abolished for all arrangements entered into on or after 1 December 2016.
For more information on the abolition of employee shareholder status advantages please see the update from our share scheme experts here.
Personal Allowance and NIC Alignment
The personal allowance will increase to £11,500 from April 2017, when the higher rate threshold will become £45,000. The Government stressed its commitment for these bands to be increased to £12,500 and £50,000 respectively by the end of this Parliament. It should be remembered, however, that in Scotland income tax is now the Scottish Government’s responsibility – it remains to be seen whether or not the Chancellor’s plan will be mirrored north of the border.
Class 1 NIC thresholds for employers and employees will also be aligned at a rate of £157 per week from April 2017 – a small increase for employers.
Non-Domiciled UK Residents
The proposed reforms to the taxation of long-term non-domiciled individuals living in the UK are to be published in the draft Finance Bill on 5 December 2016. All such individuals are to be deemed domiciled in the UK and will therefore be taxed on their worldwide income and capital gains. Their worldwide estate may become subject to UK inheritance tax.
The taxation of foreign pensions is to be aligned with the taxation of domestic pensions in the UK.
The Government has proposed to extend the disguised remuneration rules to the self-employed.
Benefits in Kind and Expenses
Legal support provided by employers to employees who are required to give evidence in court will not be taxable from April 2017.
The way in which benefits in kind are valued for tax purposes is to be reviewed.
From 2020/2021, lower company car tax bands will be introduced to encourage the use of ‘green’ vehicles.
Payments made by employees in return for a benefit in kind which is not pay-rolled must be made by 6 July following the end of the relevant tax year.
At the next budget, the Government will publish consultations on the following:
- Employer-provided living accommodation
- A call for evidence on the valuation of all other benefits
- A call for evidence on the use of income tax relief for employees’ business expenses whether or not they have been reimbursed by their employer